TY - JOUR
T1 - Going concern opinions and IPO pricing accuracy
AU - Matanova, Natalia
AU - Steigner, Tanja
AU - Yi, Bingsheng
AU - Zheng, Qiancheng
N1 - Funding Information:
We greatly appreciate the constructive suggestions from Sobhesh Kumar Agarwalla, Daniel Bradley, Sid Bundy, Vladimir Gatchev, Bradford Jordan, Timothy Loughran, Takeshi Nishikawa, Jay Ritter, and Dahlia Robinson. We would also like to thank participants at the EFA 2013 Annual Meeting, SFA 2013 Annual Meeting, FMA 2014 Annual Meeting, MFS 2017 Annual Meeting, and WFC 2017 Annual Meeting for valuable and helpful comments.
Publisher Copyright:
© 2018, Springer Science+Business Media, LLC, part of Springer Nature.
PY - 2019/7/15
Y1 - 2019/7/15
N2 - In a marked shift, it has become relatively more common for ordinary initial public offerings (IPOs) to contain going concern opinions (GCOs) in their offering documents. Examining the implications of such GCOs for IPO investors in a sample of ordinary IPOs from 2001 to 2012, we find that GCOs increase price accuracy by reducing price revisions and underpricing. Further, we show that GCO IPOs with reputable underwriters experience higher price revisions. Our underpricing analysis supports the lawsuit avoidance theory. We also provide novel evidence that the market can distinguish between temporarily constrained GCO IPOs and those with persistent problems that receive a second GCO post-IPO. Overall, this paper contributes to the existing literature by shedding light on whether GCOs contained in IPO prospectuses provide material information and result in better pricing mechanisms.
AB - In a marked shift, it has become relatively more common for ordinary initial public offerings (IPOs) to contain going concern opinions (GCOs) in their offering documents. Examining the implications of such GCOs for IPO investors in a sample of ordinary IPOs from 2001 to 2012, we find that GCOs increase price accuracy by reducing price revisions and underpricing. Further, we show that GCO IPOs with reputable underwriters experience higher price revisions. Our underpricing analysis supports the lawsuit avoidance theory. We also provide novel evidence that the market can distinguish between temporarily constrained GCO IPOs and those with persistent problems that receive a second GCO post-IPO. Overall, this paper contributes to the existing literature by shedding light on whether GCOs contained in IPO prospectuses provide material information and result in better pricing mechanisms.
UR - http://www.scopus.com/inward/record.url?scp=85049554440&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85049554440&partnerID=8YFLogxK
U2 - 10.1007/s11156-018-0747-0
DO - 10.1007/s11156-018-0747-0
M3 - Article
AN - SCOPUS:85049554440
SN - 0924-865X
VL - 53
SP - 195
EP - 238
JO - Review of Quantitative Finance and Accounting
JF - Review of Quantitative Finance and Accounting
IS - 1
ER -